Money, not sequester, is concern

When I recently hosted an online discussion, I wondered if I would get bombarded with questions about the automatic federal spending cuts that have dominated the news out of Washington. What I heard came from people trying to deal with the everyday personal financial issues that dominate their lives.

By Michelle Singletary

recordnet.com

By Michelle Singletary

Posted Mar. 8, 2013 at 12:01 AM
Updated Mar 8, 2013 at 9:53 AM

By Michelle Singletary

Posted Mar. 8, 2013 at 12:01 AM
Updated Mar 8, 2013 at 9:53 AM

» Social News

When I recently hosted an online discussion, I wondered if I would get bombarded with questions about the automatic federal spending cuts that have dominated the news out of Washington. What I heard came from people trying to deal with the everyday personal financial issues that dominate their lives.

Here are some examples, and my answers.

Q: How do my husband and I know when or if it's time to hire someone to help with our taxes? We bought our first house this past year, have made significant donations to charity and yet we still owe money. That has me wondering if we've missed something.

A: There really isn't a rule of thumb about when to bring in a professional. But the federal tax code has become so complicated and ever-changing that the vast majority of Americans need the help of a professional tax preparer or tax preparation software. Close to 60 percent of taxpayers hire someone to prepare their returns, and another 30 percent use software that can cost $50 or more.

"To inspire confidence and trust, the tax laws should be comprehensible and the computations of tax should be transparent and relatively simple, yet few taxpayers today can confidently say they understand the tax code or even that they have correctly computed their tax liabilities," Nina Olson, the national taxpayer advocate, wrote in her annual report to Congress.

We are all afraid we will miss a deduction. "No one wants to feel like a 'tax chump' - paying more while suspecting that others are taking advantage of loopholes to pay less," Olson wrote in an earlier report.

So the fact that you are asking the question because you are unsure what you might have left on the table is a good indication that it's time to hire a tax professional or get some tax software.

If you decide to hire a professional, choose carefully. The Taxpayer Advocate Service has some helpful tips at taxpayeradvocate.irs.gov. Search for "Choosing a Tax Preparer." For example, you should stay clear of preparers who guarantee refunds or base their fees on a percentage of the refund.

Q: We are downsizing our home so that one of us might be able to eventually go part time to make it easier on the family and spend more time with the kids. Right now, we both are working full time. What is the best way to prepare for one of us going part time?

A: Before going cold turkey on one full-time job, practice for as long as you can living on the one income that you will be relying upon. I would try it for at least six months, but ideally, one year. The longer you practice, the closer you get to understanding what it will be like to make ends meet during the holidays, birthdays, vacation season, etc.

I would also boost your emergency fund - going beyond the recommended three to six months' worth of living expenses.

Contact Michelle Singletary, a personal finance columnist at The Washington Post, at singletarym@washpost.com.